Games punters play

March 3, 2000

India's bellwether stock index, the Sensex has seen much volatility since Yashwant Sinha's 'harsh' Budget. It crashed nearly 300 points on Budget day, recovered a hefty 200 points the next day and dropped 113 points again on day three. Does it convey anything about the mind of the market?

The obvious answer is that the Sensex, which is dictated by a set of nervy operators with investment span of under two hours, should simply be ignored. But that would be too simplistic. The fact is that the capital market continues to be seriously disappointed with the Budget and the 200-point correction on Wednesday reflected no change in sentiment.

Punters, like industrialists, continue to reel from the blow dealt to the corporate sector by the finance minister. Thursday's fall in stock prices was far wider than indicated by the 113 point drop in the Sensex.

From FMCG stocks such as Hindustan Lever, Nestle and Procter & Gamble, to food companies such as Britannia and Cadbury, most of Tata company shares to the big oil and pharma companies, cement, engineering, commodities and automobiles -- the fall in prices was across the board.

The heavyweight Reliance Industries dropped eight per cent to hit the lower circuit barrier after the small print of the Budget was interpreted. The only buoyancy was in software stocks, HDFC and a few bank and institutional scrips.

In fact, the fall in prices almost mirrored that on the Budget without the blind panic on the part of operators. Wednesday's rally was propelled mainly by infotech companies whose prices had dropped mindlessly on Budget day on fears that software companies would be hit by the tax on exports. Wednesday's rally was also due to the efforts of a big speculator to reverse the sentiment by pushing the index heavyweights.

For good measure, there were rumors that the FM could roll back the higher incidence of excise duty on some industries. The fact that Opposition MPs have been completely preoccupied with the Gujarat government's decision to allow government employees to join the RSS was interpreted as a positive indicator that the Budget will sail through Parliament.

The massive fire fighting exercise launched by finance ministry bureaucrats and N K Singh from the prime minister's office also had its impact.

The FM and his babus in their non-stop talkathon on the television channels seemed to make three promises. First, that some of the harsh provisions in the Budget or what seemed like anomalies could be corrected before the Finance Bill was passed by the Parliament.

Second, that the vagueness with regards to divestment and expenditure cuts were, what Yashwant Sinha called, "tactics" and that the government was serious about delivering on both fronts. The babus said the government, in fact, expected to exceed the divestment target of Rs 10,000 crore and there were rumours that divestment of this magnitude had already been lined up.

These assurances along with the manipulation of software stocks brought retail operators flocking back to the market for a day. But on Wednesday, the bull lobby also found it difficult to maintain the fervour. The pharma companies in the big bull's list of ten favourites had also fallen badly. There was talk that he was pulling out of one of the major software scrips which was pushed by his group. Another scrip which is heavily supported by him seems headed for trouble.

The market grapevine has it that the involvement of leading politicians in one of the scrips in his stable may be made public soon. The scrip, which has been driven up to Himalayan heights without any fundamentals to back it, could easily upset the already volatile market.

Further, realisation began to dawn on the punters that the hullabaloo over the Budget has yet to begin. The opposition to the FM's expenditure reduction measures from the NDA's own allies was out in the open. The fiscal situation suddenly began to seem more dangerous. After all, the FM himself has warned of a balance of payments crisis. Foreign investors too are watching developments and aren't exactly rushing in with their money.

Will the market continue to slump or will it recover? I don't think anybody has a clear answer. The big fund managers are as confused as anybody else. A fund manager tells me, that the question he dreads the most these days is: "How long will the bullishness last?" He says, "Frankly, I'd like to say that I know as much as the next guy, but I am supposed to be managing several hundreds of crores of rupees, so I have to pretend that I know the answer. The truth is that I am clueless. I am also extremely nervous at the reckless manipulation of the market, the political involvement, the manner in which shady promoters are dumping stock on mutual funds in private placement deals, and most of all, the fact that I cannot refuse to buy some of this stock, because I have to ensure a respectable net asset value for my fund."

Another analyst encapsulates the situation succinctly -- "Everybody knows that the party has to end someday, but nobody knows when that is going to be." Until then the only certainty is market volatility.